July 24, 2019 / 7:51 PM / a month ago

CFTC's Glencore investigation seen reflecting broader U.S. anti-corruption strategy

NEW YORK(Thomson Reuters Regulatory Intelligence) - Foreign bribery cases in the U.S. have traditionally been led by the Justice Department, often in partnership with the Securities and Exchange Commission, which has civil-enfocement authority. But recent news that Glencore, one of the world’s largest commodity traders, is being investigated by the Commodity Futures Trading Commission for possible corrupt practices, opens a new enforcement front that commodity firms need to be wary of. Some argue the shift may reflect the Trump administration’s broader strategy in combating foreign corruption.

The logo of Glencore is pictured in front of the company's headquarters in the Swiss town of Baar, November 13, 2012.

The announcement by Glencore is the first disclosure of a CFTC investigation involving potential corruption since the U.S. derivatives regulator announced it was expanding its enforcement remit in March. CFTC enforcement director James McDonald at the time said he was seeking to uncover bribes paid in exchange for commodities-related services.

The CFTC is also focusing on corruption that affects benchmarks used in derivatives trading.

"Companies and individuals engaging in foreign corrupt practices should recognize that this sort of misconduct might constitute fraud, manipulation, false reporting, or a number of other types of violations under the (Commodity Exchange Act), and thus be subject to enforcement actions brought by the CFTC," McDonald said in a speech{here} in New Orleans.

In April, Swiss-based Glencore said on its website{here} that it had been informed by the CFTC that the agency is investigating whether “Glencore and its subsidiaries may have violated certain provisions of the Commodity Exchange Act and/or CFTC Regulations through corrupt practices in connection with commodities.”

Glencore added it “understands that the CFTC’s investigations are at an early stage and have a similar scope in terms of subject matter as the current ongoing investigation by the U.S. Department of Justice (‘DOJ’).”

A spokeswoman for the CFTC declined to comment on the investigation when asked by Regulatory Intelligence.

PART OF TRUMP ADMINISTRATION STRATEGY TO COMBAT CORRUPTION

Just why the U.S. commodities regulator has opened this new plank in its enforcement policy is unclear, but some experts believe that a link can be drawn between the new policy and the broader objectives of President Donald Trump’s administration policy on foreign corrupt practices.

“While it is not certain that the CFTC’s plans to police foreign corrupt practices is part of the administration’s broader policy goals and strategy, I think their involvement in FCPA enforcement with the DOJ is likely to prove valuable to advancing the administration’s broader policies directly – especially those related to global commodities markets and supply chains,” says Hdeel Abdelhady, a professor at George Washington Law school, who specializes in regulatory and governance issues affecting U.S. and foreign companies.

Abdelhady notes the Trump administration has been explicit about its interest in penalizing corrupt practices involving extractive industries, such as cobalt mining, which is integral to the production of electric cars, for example. Corruption in foreign commodities markets, most notably upstream, is likely to be targeted by the administration, she said, particularly those involving Chinese firms, Africa, and other regions key to global supplies of commodities that are important for U.S. commercial and policy reasons.

Glencore has a subsidiary in the Democratic Republic of the Congo (DRC), Katanga Mining, which is a major producer of cobalt and copper.

NEW YORK REGULATOR AS A MODEL FOR CFTC ENFORCEMENT STRATEGY

While the CFTC lacks power to bring criminal prosecutions, it can seek civil penalties and trading bans through its authority under the Commodity Exchange Act (CEA).

One way the agency might go after commodities producers engaged in corrupt practices is to take a page from the New York Department of Financial Services (NYDFS), New York’s top financial regulator, in past enforcement actions that at first glance were seemingly outside its legal remit.

“The NYDFS has on multiple occasions indirectly enforced federal sanctions regulations by, for example, predicating violations of the New York banking law’s reporting and recordkeeping provisions on violations of OFAC-administered federal sanctions regulations,” said Abdelhady. “The CFTC can apply catch-all provisions of the CEA by implementing a NYDFS strategy.”

*To read more by the Thomson Reuters Regulatory Intelligence team click here: http//:bit.ly/TR-RegIntel

(Henry Engler, Regulatory Intelligence, New York)

This article was produced by Thomson Reuters Regulatory Intelligence - bit.ly/TR-RegIntel - and initially posted on July 10. Regulatory Intelligence provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 400 regulators and exchanges. Follow Regulatory Intelligence compliance news on Twitter: @thomsonreuters

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